I hope this finds you and your family doing well! With the midpoint of 2020 in our rear-view mirror, I wanted to share a few thoughts on where we’ve been, where we’re at and where we’re going for the rest of the year.
Where We’ve Been
During the first six months of 2020, we experienced the arrival of the worst global public health crisis since the 1918 flu pandemic. In response, the world locked down subsequently pulling the virtual emergency brake on the economy. We experienced an almost instantaneous economic recession with record unemployment. The tell-tale sign of economic productivity is Gross Domestic Product (GDP) which is the monetary value of all goods and services produced in the country during a specified period of time. The United States GDP fell at a record annual pace of 32.9% in the second quarter. Previously, it had never fallen more than 10% on an annualized basis in any quarter since the government started keeping track of it shortly after World War II.1
The S&P 500 and the Dow Jones Industrial Average fell at a record pace too. The S&P 500 had the quickest move to a bear market, down 20% from a previously established record high, of only 16 days from February 19, 2020 to March 12, 2020. The previous record was 28 days.
On March 23rd, everything changed. On this day, the Federal Reserve announced that there would be no limit in their willingness to support and supply credit to the financial system. What followed was the pendulum swinging forcefully back the other way. The 50 trading days from March 24, 2020 to June 3, 2020 resulted in the largest 50-day rally since the S&P moved to 500 stocks in 1957. As I write to you today, we are within 1% of the February 19, 2020 highs.
Where We’re At
It has been quite the ride so far this year, and I am reminded of several convictions formed and witnessed over the last two-plus decades of us working together:
- I believe that all lasting successful investing is essentially goal-focused and planning driven. Failed investing is market focused and event-driven.
- Long-term investing success is only incidentally a function of the economy and markets. Much more important is our ability to keep our cool when the going gets tough.
- At Eastwood Wealth, we are long-term investors that are strategic in nature. We cannot time the market and believe we are asking for major trouble if we try. If the 80/20 rule is correct then 80% of what we do is helping you make sound decisions, such as not reacting in stressful times like what we’ve experienced in the first half of the year, and 20% is the planning piece, both at the beginning of our relationship and along the way.
- No one knows which way the winds of the financial markets will blow from one day, week, month, quarter or year to the next. I do know that following the Retirement Rules of the Road will help us control what we can control and smooth out the ups and downs. If I would have written to you in our annual letter last December forecasting what we have experienced since, you would have called me crazy. The same could be said if in my March 24, 2020 correspondence I would have told you that today we would be within 1% of February’s highs. The only way to be certain of capturing stocks superior long-term results is to sit tight through their occasionally steep but historically temporary declines. We are not in a sprint. It is a marathon to pursue the quality of life you desire for yourself, your family, friends and charitable causes for the rest of your life.
Where We’re Going
Financial media outlets touting investing in tangible gold have surfaced again as the price per ounce has appreciated to new all-time highs recently. I think you will find this interesting: According to Warren Buffett, all of the gold in the world would create a square block that is 67 feet on all sides. This means it would fit nicely inside the diamond of a Major League Baseball field. Sure, it has some utility, but all it can mostly do is shine. Prior to the most recent move, the metal hit its last high in August of 2011. Since then, it has increased by 10%. During the same time, the S&P 500 has increased 189%. Since 1980, gold has increased 2.5 times, the S&P 500 has increased 29 times. We need to stay the course by holding stocks as they are one of the best, if not the best, hedges against loss of purchasing power over time, our biggest obstacle.
Last, the Presidential election. It is coming whether we want to face the onslaught of media commentary, “expert” guesses, red and blue state graphics, hanging chads or whatever else may come to our minds. As we have talked about before, public companies in the United States, upon which we are owners of through the purchase of their stock, are highly adaptable creatures. If policy cuts them off one way, they will find another route. To quote Warren Buffett, “If you mix politics with your investment decisions, you’re making a big mistake.” I am not suggesting that the financial markets will experience straight line growth to the upside. They never do which is part of our lifetime pursuit and a reason why planning is so important. I do believe with all of the conviction in my soul that the best companies in the world will continue to evolve past the outcomes of the unknowns such as the Presidential elections and pandemics, and this time will be no different.
I invite you to consider that what we cannot “see” is much more likely to happen than what we can. Think about the last 20 years from the dotcom busts, 9/11, the 2008 financial crisis to the coronavirus. Very few saw those events coming and acted on it correctly, ahead of time. It would be wise for us to protect our downside with actions under our control and let what we cannot control unfold on its own. This is the safer path though it is counterintuitive to logical thinking. Logical thinking is linear in nature though many of the answers we are trying to solve for live in an exponential world. This is where the disconnect lies. Once we fully grasp this reality, everything changes. We must not mistake the proverbial trees for the perspective of the forest. Our lifestyle and financial well-being depend on it.
Thank you for allowing us to be a part of your family, and we appreciate you being a part of ours. As always, we provide confidential ears to listen to anything on your mind and offer 100% open lines of communication. If you need me before you hear from me, feel free to reach out anytime. Enjoy the rest of your Summer! Take care, Tim
The opinions expressed in this material do not necessarily reflect the views of LPL Financial